Strengthening East Asia economic cooperation

Strengthening East Asia economic cooperation

By Li Tieying

This is the second of two articles based on a presentation at
the Indonesian Institute of Sciences in Jakarta on Feb. 16.

JAKARTA (JP): China, though not directly involved in the East
Asia crisis, was affected as well. Now, what lessons have we
learned from the crisis?

In the first place, developing countries should be very
careful when they open their capital markets.

China has yet to completely open its capital market and there
are still strict capital management and control measures in many
aspects. This is an important reason why China was not involved
in this crisis.

But globalization and internationalization of production
demands objectively that all countries loosen management and
control over their capital markets and that financial
liberalization be realized. China is no exception and will
eventually open its capital market, especially after its entry
into the World Trade Organization.

However, the world financial system cannot guarantee the
security of international finance. The financial systems of
developing countries are rather fragile and vulnerable to outside
attacks.

Secondly, therefore, the capital market should be opened in an
orderly manner and matching policies and measures should be
adopted; a set of risk-prevention and early warning systems
should be established.

Caution should also be taken with foreign debts and the scale
of short-term foreign debts should be controlled.

For the most severely hit countries, factors beyond control of
foreign debts and particularly the inability to repay the huge
amount of short-term debts were the main causes of this crisis.

In China, the scale and structure of debts are within a
comparatively safe scope, which is why a debt crisis has not
taken place.

Third, the management of financial institutions should be
strengthened and relations between the banking sector and the
government should be straightened out.

In some countries in East Asia, the lenient, nontransparent
and ill-managed financial systems heavily contributed to the
large number of bad debts. China's experience shows that the
large scale of policy loans lent to loss-making state-owned
enterprises was a major reason for bad debts.

China's financial reform is now being conducted in an orderly
way. The priority is to straighten out relations between the
banking sector and the government, to strengthen the management
of the banking sector while reducing intervention from government
departments and to promote the marketization of the financial
industry.

Fourth, new and high-tech industries should be the forerunner
in the further adjustment of the industrial structures.

To reiterate, the problem of disproportion of the industrial
structures in the East Asian region is an important reason for
the financial crisis.

In the mid-1990s, a new round of adjustment of the world
industrial structures, with information technology as the
forerunner, unfolded, but East Asia lagged behind.

The production capacity of traditional labor-intensive
industries is stagnant in East Asia and recent years has seen the
trend of insufficient domestic demand and saturation of the
consumption market. An economic recession would easily take place
without the pioneering of new industries and a new consumption
market.

China is a big industrial country with a sound new and high-
tech foundation. We cannot wait for industrial transfer of other
countries and must take initiatives to increase input in science
and technology, to develop new and high-tech industries, to
promote industrial upgrading and to reduce basically the chance
of the happening of financial crises.

The year 1999 witnessed the recovery of economies in East
Asia. The economic situations of the five most severely hit
countries picked up and other economies in this region also
improved.

There are many favorable conditions for the economic recovery
in East Asia, for instance, the high deposit savings rate, the
great attention paid to education, the high degree of openness to
foreign capital and technology, the developed trade networks, the
huge young labor force and the strong cohesion of the society and
so on. These "East Asian characteristics" will greatly increase
the potential for development of East Asian economies.

East Asian countries must now make full use of these positive
factors to maintain and consolidate economic recovery. The
countries need to further adjust their macroeconomic policies,
step up adjustment of economic structures, deepen financial and
enterprise reforms, increase input in science and technology,
improve productivity, perfect the market mechanism and rules and
regulations and eliminate corruption. Only in this way can the
economic development of East Asia have a brighter future.

One of the profound lessons from this financial crisis is that
the recovery and development of East Asian economies require not
only the persistent promotion of reforms and economic structural
adjustment, but also further strengthening of coordination and
cooperation.

Cooperation between China and East Asia began a long time ago
and this cooperation has withstood the trials of the crisis.

China has close economic links with various East Asian
countries and regions. After the crisis, the Chinese government
adopted measures to stabilize the economy and to overcome the
crisis, which included efforts to provide aid to the most
seriously hit countries through the International Monetary Fund
framework and bilateral channels. The Chinese government also
promised to keep the exchange rate of its currency, the renminbi,
stable; the currency has not devalued during more than two years.

Of course, we have paid a heavy price for it. To promote
economic development, we have formulated active financial
measures to increase the issuance of national debt and to
stimulate domestic demand. China also continues to expand and
deepen reforms, particularly of the financial system, which will
raise the ability to guard against more financial risks.

The policies of the Chinese government to stabilize its
currency's exchange rate and to stimulate domestic economic
growth have paid off. This fully demonstrates the highly
responsible attitude of the Chinese government toward this crisis
and its sincerity to cooperate closely with East Asian countries.

A developed China has also proved to be beneficial to the East
Asian region and to the world at large. Some people have
expressed their concern about a developed and strong China, and
others with ulterior motives have spread the theory of "the China
threat " -- which the government has repeatedly denied.

China sincerely hopes and will make unremitting efforts to
strengthen cooperation with other countries, in which the
strengthening of cooperation with East Asian countries is a focal
point in China's foreign relations.

The primary task for cooperation in East Asia is to further
create a peaceful environment for smooth economic development. We
should strengthen cooperation in trade, finance, investment and
science and technology and in the financial field.

Leaders of 13 East Asian countries held an informal summit
meeting in Manila last November, the third of its kind and the
first in which a joint statement was issued. They have reached
many common understandings on strengthening cooperation. Efforts
are needed to consolidate this cooperation mechanism and to
implement concrete economic projects. Cooperation in East Asia
complements other cooperation in the world and in the Asia-
Pacific region.

There are 10 countries in ASEAN that are close neighbors of
China which are important in China's diplomatic strategies.

China and ASEAN countries are all Asian developing countries,
sharing a common cultural background and a strong sense of
identification, and holding similar views on the idea of values,
human rights, democracy and on many international affairs.

China and ASEAN countries can complement each other in natural
resources, technology and capital and human resources. In recent
years, ASEAN has become the fifth largest trading partner of
China and there is a great potential for further expansion of
trade. There is indeed competition in the export market and
products, but there are more opportunities for economic
cooperation.

In recent years, China and ASEAN countries have established
many channels for exchange and cooperation, including mutual
visits by head of states, dialogs between foreign ministers,
consultations between high-ranking officials, the ASEAN Regional
Forum (ARF), non-governmental contacts and so on.

Mechanisms such as China-ASEAN Cooperation Committee, China-
ASEAN Scientific Committee, ASEAN Beijing Committee, etc. have
been established. At the end of 1997, a good neighborly and
mutual trust partnership was set up between the two sides.

Such a cooperative relationship is not only in the interests
of the two sides but also conducive to peace, development and
stability in the Asia-Pacific region.

The writer is president of the Chinese Academy of Social
Sciences and a member of the political bureau of the Central
Committee of the Communist Party of China.